U.S. Corporate Tax Rate To Be Highest In The Developed World

Reuters

* Japan's corporate tax rate dropping to 38.01 pct on Sunday

* Combined U.S. 39.2 pct rate will be developed world's highest

By Patrick Temple-West and Kim Dixon

WASHINGTON, March 30 (Reuters) - The United States will hold the dubious distinction starting on Sunday of having the developed world's highest corporate tax rate after Japan's drops to 38.01 percent, setting the stage for much political posturing but probably little tax reform.

Japan and the United States have been tied for the top combined, statutory corporate rate, with levies of 39.5 percent and 39.2 percent, respectively. These rates include central government, regional and local taxes.

Japan's reduction , prompted by years of pressure from Japanese politicians hoping to spur economic growth, will give that country the world's second-highest rate.

This has triggered complaints from U.S. politicians and business groups.

"This isn't an April Fool's Day joke," said Senator Orrin Hatch, the leading Republican on the Senate Finance Committee.

"Every industrialized country around the globe understands that tax rates can determine whether or not businesses succeed or fail," Hatch said in a statement.

Across most of the political spectrum there is broad agreement that the U.S. corporate tax rate is too high, though few corporations actually pay that rate because the loophole-riddled tax code gives them lower "effective" rates.

Republicans and Democrats agree that the tax code needs work. It has not been thoroughly overhauled in 25 years.

In February, President Barack Obama proposed a corporate tax reform blueprint that included a 28 percent top rate.

Republican presidential hopeful Mitt Romney has said he wants to cut the corporate rate to 25 percent.

COMPETITIVE EDGE

The average 2012 corporate tax rate for the 34 developed countries is 25.4 percent, according to the Organization for Economic Co-operation and Development.

"As countries such as Canada and the United Kingdom have moved to reform their tax systems and lower rates to encourage economic growth, America's inaction puts American worldwide companies at a competitive disadvantage and threatens our economic recovery," said Bruce Josten, an official at the U.S. Chamber of Commerce.

Some U.S. companies pay close to the 35 percent top corporate tax rate; some pay nowhere near that, thanks to tax breaks that let them lower their "effective" tax rates.

Of the 30 companies in the Dow Jones industrial average, 19 told shareholders their effective rate for their 2011 fiscal years, mostly ending Dec. 31, was below Obama's proposed new tax rate, according to a Reuters analysis of securities filings.

Of these companies, three - telecom company AT&T, Bank of America, and insurance company Travelers - posted a tax gain.

For the index's other 27 companies, effective rates reported ranged from 2.7 percent for telecom giant Verizon Communications to 43.3 percent for energy group Chevron Corp.

These figures are taxes for shareholder accounting but not necessarily what was paid last year because Congress lets companies defer parts of their income tax for future years.